Facts of the Case

Multiple writ petitions were filed before the Delhi High Court by various assessees including Twylight Infrastructure Pvt. Ltd., challenging reassessment proceedings initiated by the Income Tax Department.

The reassessment proceedings were initiated through notices issued under Sections 148 and 148A of the Income Tax Act, 1961, alleging that certain income had escaped assessment for the relevant assessment years.

The petitioners had originally filed their income tax returns, which were processed under Section 143(1). Subsequently, after the decision of the Supreme Court in Union of India v. Ashish Agarwal, the Income Tax Department issued notices under Section 148A(b) alleging escapement of income.

After considering replies of the assessees, the Assessing Officer passed orders under Section 148A(d) and issued consequential reassessment notices under Section 148.

The petitioners challenged these proceedings on the ground that the reassessment notices were issued without obtaining approval from the “specified authority” as required under Section 151(ii) of the Income Tax Act.

Issues Involved

  1. Whether reassessment notices issued under Sections 148 and 148A are valid when prior approval is not obtained from the specified authority under Section 151(ii) of the Income Tax Act.
  2. Whether approval obtained from authorities under Section 151(i) is sufficient where more than three years have elapsed from the end of the relevant assessment year.
  3. Whether reassessment proceedings can continue where statutory sanction requirements under the amended reassessment regime are not complied with.

Petitioner’s Arguments

  • The petitioners contended that prior approval of the specified authority is mandatory before issuance of notice under Section 148.
  • Where more than three years have elapsed from the relevant assessment year, approval must be taken from authorities prescribed under Section 151(ii).
  • In the present case, the Income Tax Department had obtained approval only from authorities falling under Section 151(i).
  • Therefore, the reassessment notices and the proceedings initiated pursuant thereto were without jurisdiction and legally invalid.

Respondent’s Arguments

  • The Income Tax Department contended that the reassessment proceedings were initiated after following the procedure prescribed under Sections 148A(b) and 148A(d).
  • It was argued that approval had been obtained from competent authorities and that the reassessment proceedings were therefore valid.
  • The department further submitted that the reassessment action was taken based on information indicating escaped income, which justified initiation of reassessment proceedings.

Court Findings

The Delhi High Court examined the provisions governing reassessment under the amended scheme introduced by the Finance Act, 2021.

The Court observed that Section 151 clearly specifies the authority whose approval is required before issuing a reassessment notice, depending on the time elapsed from the end of the relevant assessment year.

The Court held:

  • If three years or less have elapsed, approval must be obtained from authorities mentioned in Section 151(i).
  • If more than three years have elapsed, approval must be obtained from authorities specified under Section 151(ii).

In the present cases, although more than three years had elapsed, the department obtained approval from authorities falling under Section 151(i) instead of those specified under Section 151(ii).

Court Order

The Delhi High Court quashed the reassessment notices and orders issued under Sections 148 and 148A in all the connected writ petitions.

However, the Court granted liberty to the Revenue to initiate fresh reassessment proceedings in accordance with law, if permissible.

Important Clarification by the Court

  • Approval of the correct specified authority under Section 151 is mandatory for initiating reassessment proceedings.
  • The authority granting approval depends upon the time elapsed since the end of the relevant assessment year.
  • Failure to obtain approval from the appropriate authority renders the reassessment proceedings legally unsustainable.

Link to download the order - https://delhihighcourt.nic.in/app/showFileJudgment/RAS05012024CW165242022_114311.pdf

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